Debt-Deal Readies Wall Street's Launching Pad

by John M. Curtis
(310) 204-8700

Copyright July 31, 2011
All Rights Reserved.                                         

              Nearing a long-awaited deal on raising the debt-ceiling, the bulls on Wall Street are ready to charge, promising a furious rally when markets open up Monday.  After a painful week of selling off, all indications point toward a major buying frenzy once Washington completes its politically-tinged debt deal.  Tea Party neophytes in Congress flexed their muscles, giving moderates like House Speaker John Boehner (R-Ohio) fits before finally grinding out a deal in the U.S. Senate.  “A deal of $2.8 trilliona looks like the outcome and the mechanism is in place, and no default.  That is enough to rally markets,” said David Kotuck, chief investment officer of Cumberland Advisors in Sarasota, Florida.  Kotuck responded to last week’s 400- point decline in the Dow Jones Industrials. Wall Street’s hedge and private equity funds have no problem short selling during market uncertainty.

            Whatever domestic or world events, Wall Street knows how to maximize profits by selling or buying.  Since President Barack Obama took office Jan. 20, 2009, markets have steadily risen, climbing over 60%.  Recent market declines say more about Washington’s political bickering than current market fundamentals.  Since Jan. 2009, the trend has been a bull market, an up-trend for equities induced by historically low interest rates.  Republicans’ obsession with slashing the U.S. budget says a lot about what they expect in the future.  Most economists don’t see the doom-and-gloom especially, requiring Washington to slash its debt and budget deficits.  On the expense side of the ledger, the end of the Iraq and Afghan wars should put abundant cash into the U.S. treasury.  As the recovery progresses and unemployment drops, the government sees lower deficits ahead.

            Debt-rating organizations like Moody’s or Standard and Poor rate credit worthiness on the debt to Cross Domestic Product ratio.  While the U.S. has been running about 10%, the European Central Bank recommends around 3%, something difficult to maintain especially in debt-ridden European countries like Greece, Portugal, Ireland, Spain, Italy and especially Greece.  As wasteful debt declines, like payments for foreign wars, the debt to GDP ration also declines.  Apart from Washington’s politics-as-usual, there’s no possible reason for Congressional Tea Party freshman to take such a hard line on U.S. debt.  With the Iraq and Afghan wars ending soon, there’s every reason to believe the debt-to-GDP ratio will also drop.  Washington’s Tea Party-induced budget-slashing frenzy could result in future budget surpluses, especially after Obama’s health care program kicks in in 2014.

            Worries about a U.S. credit downgrade from AAA to something less are beginning to fade now that a debt-deal is within hand.  While there’s nothing wrong with containing Washington’s waste, fraud and mismanagement, elected officials have a duty to “protect and defend” not only the U.S. Constitution but also to the economy.  Tea Party threats to send the nation into default raise real questions about what constitutes treason.  Elected officials don’t take an oath of office, as former President Ronald Reagan once said, to preside over the dissolution of the world’s strongest economy.  Elected officials, including the Tea Party, are duty-bound to promote the U.S. economy.  No Supply-Side or Trickle-Down theory is worth defaulting or harming the U.S. government.  Recent market sell-offs reflect growing uncertainty in Washington about poltical infighting and gridlock.

            Once the debt-ceiling deal is signed and delivered, the White House and Congress have to get down to the business of fixing a broken job maret currently unable to supply enough jobs to its population.  There’s only one-way to fix the U.S. economy:  Generate enough new jobs.  Manufacturing must come back to the United States.  Following the auto industry’s lead, foreign consumer electronic and appliance makers, especially big screen TVs and refrigerators, must set up shop America.  Tea Party zealots must accept thet Reaganomics alone won’t balance today’s budget, anymore than it did back then.  Returning manufacturing jobs to the U.S. is the only sure way to eventual path to prosperity.  Slashing budgets and taxes won’t create enough private sector jobs until manufacturing returns to the U.S.  Elected officials must solve the riddle of bringing manufacturing jobs back home.

            Pushing the debt deal to the 11th hour, Washington proved, yet again, it can get  things done when it wants too.   Election year or not, political posturing has no place when it comes to fixing the U.S. economy.  No political minority, no matter how well-intentioned or ill-advised like the Tea Pary, should sabotage the economy for political purposes.  At the end of the day, Senate Majority Leader Mitch McConnell (R-Kt.) and House Speaker John Boehner (R-Ohio) had to clip Rep. Eric Cantor’s (R-Vir.) Tea Party wings to get a workable deal with Senate Majority Leader Harry Reid (D-Nev.).  Cantor’s plan of sending the country into default to damage Obama politically borders on treason.  No elected official should play politics with jobs and the U.S. economy.  Now that the political grandstanding is over, the White House and Congress should get back to work on creating more jobs.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.

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